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By Eric M. Johnson and Nick Carey
Nov 6 - The consolidation of the U.S. trucking industry is picking up speed, with big trucking companies and private equity funds scooping up smaller firms as a U.S. regulatory mandate is set to go into effect and as drivers push for higher wages.
There have been 44 publicly announced freight movement and logistics deals within the U.S. so far this year, according to Thomson Reuters data, already topping the 38 deals announced in 2016. And the total is likely much higher because most deals are private, said Todd McMahon, managing director at investment bank Capstone Partners.
Trucking companies by late December must start using electronic logging devices, known as ELDs, to track the number of hours drivers are behind the wheel.
The new mandate makes it harder for trucking firms to dodge federal limits on the hours drivers can work and will likely cut into productivity, trucking industry officials have said. That would pressure already razor-thin margins at smaller trucking firms, fueling consolidation.
Executives at larger trucking companies and private equity firms have said they are aggressively hunting for deals.
And the trucking industry is recovering after a tough few years, making struggling firms more likely to sell, Dan Clark, transportation finance head at BMO Harris Bank, the largest U.S. truck-financing arm.
XPO Logistics Inc Chief Executive Officer Brad Jacobs said last week the company has a war chest of up to $8 billion for possible deals in the coming months, and has narrowed its target list to dozens of companies.
XPO has used rapid-fire acquisitions to grow from a small truck brokerage into a diversified company. In a 2015 buying spree of roughly $6.5 billion, it snagged trucking and logistics firm Con-way for $3 billion as well as France's Norbert Dentressangle for $3.53 billion.
Scott Wheeler, chief financial officer at Daseke Inc , which hauls industrial equipment for customers like Caterpillar and Deere & Co on flatbed and specialized trailers, said acquisitions will fuel the company's rapid growth.
Daseke, with a market value of $597 million, has closed four deals in 2017 with more due before year-end.
"There is so much opportunity," said Wheeler, whose finance team is evaluating numerous merger targets with well-managed fleets and revenue of $40 million to $250 million.
Daseke is the largest carrier in the $133 billion open-deck and specialized trucking niche, yet still has less than one percent of this fragmented market.
In August, Green Bay, Wisconsin-based Schneider National Inc told analysts the company plans to focus on "specialty areas" for acquisitions.
Echo Global Logistics, with a market value of $664 million, has an "active pipeline" of so-called tuck-in deals aimed at strengthening a particular division that they are working on, CEO Douglas Waggoner told investors.
Financial data provider Preqin said year-to-date North American fundraising for private equity funds that include logistics as part of a wider focus has hit $11.6 billion, compared to $7.5 billion for all of 2016. The top funds in that sector either declined to comment or did not respond to requests for comment on their investment plans.
The biggest deal so far this year was the merger of Swift Transportation Co, the sixth-largest U.S. trucking company, and Knight Transportation Inc, the 23rd-largest, creating the biggest truckload operator in North America with a combined market value of more than $5 billion.
"The big are getting bigger and then, with Knight-Swift, that's the big-big getting huge," said Jeff Sass, senior vice president at truckmaker Navistar International Corp.
For a FACTBOX on major deals this year see:
Industry executives say the electronic log rules give big trucking companies who already use electronic logs a stronger hand in the market.
Companies like Schneider and Covenant Transportation Group Inc, which provides long-haul services, have used electronic logs for years and backed the rule. But the mandate could sap productivity by 3 percent to 15 percent, according to industry estimates.
Trucking firms have also had to raise driver pay as they struggle to attract and retain drivers amid a general driver shortage and tight U.S. labor markets, which has also pressured margins.
In addition, many owners of family-owned truck firms that launched following industry deregulation, which reduced government controls on trucking rates and routes from 1980, have hit or are approaching retirement age with children pursuing different careers.
For many, their options are sell out, or shut down.
"It's (the pace of acquisitions) been as busy as we've seen it since we started the business 13 years ago," said Jim Parham, managing partner Florida-based M&A advisory firm Transport Capital Partners.
"We expect this pace to continue, if not accelerate, in the coming months," Parham said.
Parham hopes to close four deals between firms with revenue of between $10 million to $250 million in the coming weeks but declined to provide specifics.
In February, Parham helped less-than-truckload carrier Central Freight Lines buy Wilson Trucking Corp out of Waco, Texas, another LTL carrier, to expand into the U.S. Southeast. LTL carriers consolidate smaller freight loads onto a single truck.
Some privately held carriers are focused on building out their own fleet rather than buying other firms.
Brad Pinchuk, CEO of Dubuque, Iowa-based Hirschbach Motor Lines, said finding companies to buy that match his modern fleet and low annual driver turnover is tough. He has pursued aggressive expansion, nearly tripling his fleet since 2013 to around 1,100 trucks.
Pinchuk says the outlook for family-owned truck firms is bleak because major customers want a handful of big suppliers.
"Our big customers are getting bigger and they are doing business with fewer transportation providers," Pinchuk said. "That makes it pretty darn tough for a small guy to do business directly with a large shipper."
Certain niche, higher-margin truckers may be targeted by private equity firms, said Capstone's McMahon.
For example, Magnate Worldwide, a joint venture between private equity firms CIVC Partners LP and Magnate Capital Partners, acquired New York-based fine art shipper Masterpiece International in April for an undisclosed sum.
Reporting by Eric M. Johnson in Seattle and Nick Carey in Detroit; Editing by Meredith Mazzilli